What me­dian price means

Pilbara News - - Property - Sa­man­tha Jones

What do we mean by “me­dian price” in re­la­tion to prop­erty?

The term me­dian price is one that is thrown around a lot in real es­tate ver­nac­u­lar. But what does it ac­tu­ally mean?

Put sim­ply, the me­dian price is the mid­dle price in a range of prop­erty sales. To work this num­ber out, you would ar­range a list of sold prop­er­ties in or­der of cheap­est to most ex­pen­sive and de­rive the me­dian price from the cen­tre point of that list. Why do we use me­dian price? REIWA com­monly uses me­dian price be­cause it’s a bet­ter in­di­ca­tor of changes in the gen­eral prop­erty mar­ket than an av­er­age price given that it isn’t af­fected so much by a hand­ful of very high or very low priced sales.

A com­mon ques­tion we get asked is what is the dif­fer­ence be­tween the me­dian price and the av­er­age price?’ The two should not be con­fused. An av­er­age price is cal­cu­lated by adding the to­tal value of sales from a list and then di­vid­ing the an­swer by the num­ber of prop­er­ties sold.

This num­ber is an en­tirely dif­fer­ent fig­ure and can po­ten­tially be skewed in ac­cu­racy by ex­treme prices that do not re­flect the norm of the area.

How do we use the me­dian price?

The me­dian broadly il­lus­trates the pur­chas­ing habits of buy­ers and is a stronger barom­e­ter of con­sumer sen­ti­ment and mar­ket con­di­tions. It is widely used to es­ti­mate the sell­ing price. If the me­dian is at an early stage of growth then the seller would be more in­clined to ex­pect a higher price in the near fu­ture. If the me­dian has al­ready risen sig­nif­i­cantly over a long pe­riod then it may be less likely that a prop­erty will sell for more than com­pa­ra­ble ones. Sa­man­tha Jones is a rep­re­sen­ta­tive of the Real Es­tate In­sti­tute of Western Aus­tralia.

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